He wasn’t the originator of the phrase, but whoever it originally was, they were – excuse the pun – right on the money.

The point is very simple, a business can have the largest order book in the land. It can have more clients that it knows what to do with. And it can have a turnover of gargantuan proportions. But if it doesn’t have cash as working capital to run its day-to-day operations or invest in plant and equipment, then it’s either heading for oblivion or destined to become a zombie that will just about service its debts but do no more.

Economic background

Times have been tough of late and David Bunker, director of Compass Business Finance, considers the ups and downs of the last few decades as “unique”. He’s referring here to the financial and banking crisis, Brexit, the pandemic, war on the margins of Europe, and a resulting energy crisis, and rising inflation with correspondingly high interest rates.

It is, then, not unsurprising, as he puts it, that “business owners in the UK have been in and out of survival mode for a prolonged period, and for some navigating these challenges has brought tremendous pressure.”

He adds that “while insolvencies are still rising in 2024, overall business confidence is increasing, supported by optimism in the economy and softening interest rates”.

Bunker’s seen the tightening of lending criteria, particularly “in relation to term loans and overdrafts by more risk adverse high-street banks”, triggering the growth of asset finance and asset-based lending solutions for equipment investments, M&A, restructuring, turnaround, and capital raising events. There are, in his view, many options open to a firm seeking funding.

Phil Chesham, managing director of Invoice Finance at Time Finance, also thinks that there is no shortage of funding available. He explains that demand with institutions was down during and immediately after the post-Covid period with easily accessible and relatively cheap funding via various government schemes, but this has picked up significantly in recent months.

In general terms, he says that “the majority of businesses which navigated [the Covid] period are now fundamentally sound, but of course they are now having to manage legacy debts incurred during Covid with their ambitions for future growth”.

Paul Philbrick, managing director of Close Brothers Asset Finance’s Print division, thinks something similar and considers print businesses as “traditionally very resilient, having traded through the economic cycles in the past”.

For him, “the biggest impacts... continue to be the uncertainty around energy costs along with price increases in raw materials, with both these factors having a marked impact on cashflow”. On top of that are interest rates and inflation that “have also played their part over the past year and a half”.

Philbrick is “cautiously optimistic” because print is “increasingly being on-shored here in the UK as customers become more aware of their carbon footprint and impact on the environment”.

He also outlines the finding of the Close Brothers’ Business Sentiment Index, which measures confidence in the print sector and it’s moving in the right direction.

This said, he seems pleased that there is government support for firms. As he explains, “the successor scheme to the Recovery Loan Scheme, the Growth Guarantee Scheme, was launched in July 2024 and was designed to support access to finance for UK small businesses as they look to invest and grow”. He emphasises that while “the Growth Guarantee Scheme aims to improve the terms on offer to borrowers, if we can offer a commercial loan on better terms, we will do so”.

When seeking funding

When it comes to trying to persuade a lender to lend it’s important that firms understand what they are looking for in the information that needs to be supplied so as to become an attractive proposition.

For Chesham the key to success is simple: “It’s about being transparent.” By this he means that it’s important to “tell the funder your ‘warts and all’ story, the ups and downs, and the plans you have in place for the future. Be ready and willing to provide information to the lender that they will need to help make their decision easier and quicker”.

This means having on hand the latest financial accounts, up-to-date bank statements and, of course, a summary of anything that hasn’t quite gone to plan that is likely to be picked up when searches are carried out.

By extension, Chesham says that it’s important to be open and upfront about bad news. But taking this pro-active approach can actually shine a favourable light on a borrower for, as he says, “lenders want to know whether you and your business are in a good place, and if it’s not, what plans you have to change that... they want to understand what you are doing and why, and they want you to demonstrate to them that you are a business with a plan to succeed”.

Bunker says something similar when he explains that: “Compass takes a relational approach to finance, so if you’re just thinking about a project or investment, or looking to release capital, we’d rather you pick up the phone to speak to us.” He strongly advises being open minded to see the full range of options before making a decision.

Even so, he states that “the most important thing to have is a strong business proposition”. He says that Compass can “generally gauge the information needed from one meeting or phone call, depending on the type and amount of finance sought”. That said, he adds that good financials are necessary “to ensure we can find the best solution for each business.”

In contrast, he says that high-street banks still place a high bar for access to funding and often require a business to have banking facilities with them – this tends to mean that “they’re looking for solid credit ratings, deposits and personal guarantees”.

Philbrick adds another aspect – people. While he too says that Close Brothers base lending decisions on the overall health and plans of a business, he says that “our clients are more than just a credit score – the human component is core to our business – every stage in the lending decision-making process involves a member of our team”.

Chesham makes an interesting point here, that it may help a borrower’s case to consider approaching independent lenders who may have the freedom to evaluate an application holistically and so can take the business’s circumstances into account when checking affordability.

And Philbrick agrees, adding that applicants “should see the assets they currently have as a vehicle for raising capital and helping fund ventures”. He asks: “Could a new piece of equipment help win new business or grow the current offering to existing customers?”

He continues: “There are a lot of options out there for borrowers, some of which they may never have considered, for example seasonal payments.” This is why he recommends “businesses contact us to see if there is a way we can help make the financing of their purchase more suited to their business’s needs; every agreement is structured slightly differently and tailored to the requirements of every customer”.

But as to how to progress an application, Chesham refers to an acronym he says is used by the banks: PARTS. He says that understanding its meaning is essential for those looking to borrow:

Purpose: What do you need the funding for and how will it impact your business?

Amount: How much do you need to borrow? Make sure you are not asking for too much or too little.

Repayment: How much can you afford to repay each month? Cashflow forecasts help here and demonstrate thought.

Term: How long do you want the facility for?

Security: What security are you willing to provide – personal or otherwise. An unwillingness to provide security may unnerve a lender. But equally, you should only offer what you are comfortable with.

The use of funding

It’s important to understand the forms of funding available and that there are three primary options: asset finance, invoice finance and loans. Businesses can utilise a mix or use just one type depending on what the finance is needed for.

Philbrick recommends borrowers consider what they want to achieve rather than just going with what they know is available. By way of example, he says that Close Brothers is seeing investments in assets that mitigate increases in costs, for example, more efficient products that add value to their underlying profitability. A good example of this being the funding of solar systems to lower energy bills.

In fact, he thinks now is good time for print firms to invest as “advances in technology mean businesses can give themselves a competitive advantage, which enable future savings”. He talks here of his clients “listening to their customers, who want them to be able to provide, for example, labels and packaging options”.

As an additional point, Chesham reckons that “SMEs experiencing growth or cashflow issues due to slow and late payment from their customers can use invoice finance to release the cash locked up in unpaid invoices”. Effectively those invoices are used as an asset to secure funding.

Asset finance, on the other hand, is ideal for businesses looking to buy new, or refinance, equipment, machinery, or IT. As Chesham explains, “this type of finance gives business owners the opportunity to acquire new equipment without having to raise the full cost upfront. And by spreading the monthly payments over a period of time (typically 36 to 60 months), the impact on cashflow is diluted”.

It follows that if a business owner is not sure what product or funder is best for them, they could speak to a finance broker or intermediary for advice who can also guide applicants through the process.

Naturally, when seeking third-party advice, it’s essential to find someone who is trusted, experienced and valued.

But whatever approach is taken, Bunker recommends matching the business to the right provider. This is why he says that “you need to find one that understands your sector, SME lifecycles, and is right not just at inception but also ‘in-life’. The aim of business is normally growth; you should expect the lender to want to grow with you”.

He expands on the term ‘in-life’ – support that he thinks is crucial: “Business cycles and other event driven scenarios can mean a business will need support through the term of the finance and beyond.”

Alternative sources

As to whether borrowers should seek a mix of funding – for example, banks, angel, venture capital or private equity – Chesham reckons that “the source of funding is very much dependent upon the borrowing requirement”; he considers angel, venture and private equity designed for larger transactions. Further, he says to be cognisant of the fact “that when seeking these kinds of funding, it will usually require giving away portions of equity. In the short term this can look attractive, but further down the line this could impact the amount you receive if the business is sold”.

Bunker too sees businesses requiring a mixture of funding types such as commercial property finance, invoice finance, inventory finance, terms loans and asset finance. He is also aware that they may access these and other types of equity finance from various sources. But from his perspective “it is worth reviewing your financial position and debt position holistically and speaking to asset-based lending providers to see how a collective agreement could reduce your overall costs and benefit your monthly cashflow position”.

In the round, Bunker is seeing growing demand for wider asset-based lender deals for larger investments as well as M&A activity; he says that Compass works with the debt and equity market, as well as business angels looking to invest.

Bunker does suggest that ‘alternative’ can still mean a bank. As he says, “independent lenders and challenger banks are helping businesses invest by focusing their attention on the future and taking the time to understand the needs of the business”. He mentions here the Growth Guarantee Scheme and accredited financial institutions which “support lending to UK SMEs in scenarios where additional support is required to get an investment off the ground”.

A key point for Philbrick, is that it’s essential that “business owners speak with their accountants to get their input before making a decision on funding”.

And Bunker agrees, saying that “advice from professional bodies, such as accountants and lawyers is really vital, and we can help point businesses in the right direction”.

Avoiding errors

Just as any aspect of a business can find trouble, so borrowers can make mistakes when applying for funding. From his standpoint, Chesham has seen delays in the application process typically coming when there is lack of detail and full transparency: “We suggest having a clear plan and understanding the wants and needs of your business before applying and presenting the information the lender is requesting clearly.”

He also thinks it makes sense to seek out a number of different lenders and so “choose a funder that you feel comfortable with, one who has listened to the circumstances within your business and has given you substantial options”.

Similarly, it’s important to not think solely about the short-term needs of the business, but to also consider the longer-term plans. Here Chesham asks a number of questions: “What are your long-term goals? Will you be needing to recruit more people in six months’ time? Do you need to move premises, buy new commercial vehicles, or machinery? And how can you factor this into your financial solution now?”

Bunker notes that finance can often be accessed within 48 hours “if it’s a straightforward transaction”. However, he adds that “the greater the amount of finance sought or the complexity of the project you’re looking to achieve, the longer it will take”.

Consequently, applications take time and thought so it’s also important to set aside sufficient time to get the process right.

Worryingly, he’s seen situations where a business has looked to one source for a particular type of finance and received a negative decision. He says of this that “it’s been shown that they often cancel or delay the investment indefinitely when they know it would have ultimately benefited the business”. This is why he says that “I’d encourage people to look at different sources, get the right advice and discover the right option for them”.

Summary

Finance is never a ‘done deal’. Rather, while there may be a multitude of options and sources, success requires a good case presented appropriately with solid information to back the application. And for that there is only one solution – plenty of legwork.

ATTRACTING FUNDERS

When, after research, a funding route has been chosen, it’s important to take steps to ensure the best chance of success for an application. Ultimately, this means demonstrating that the business has value and can be relied on to repay the funding – and the trust placed in it.

Consider:

What is my business’ credit rating?

What level of debt does the business currently have?

What is the funding needed for growth or working capital?

What is the funding requirement for the business based on the current cashflow

Can I show the lender up-to-date management accounts?

Do I have financial projections for growth funding?